9.8 - Reorganizations Flashcards
Overview
How are reorganizations considered for tax purposes?
As a change in form of investment rather than than a disposition of assets
Overview
How is gain recognized for reorganizations?
Gain recognized to the extent of boot
Shareholder
How do shareholders recognize gain or loss in reorganizations?
Shareholder recognizes no gain or loss on an exchange of stock or securities solely for stock or securities in the same or another corporation that is party to the reorganization
How do shareholders recognize boot in a reorganization?
Gain on non-qualifying property is recognized
Define non-qualifying property that shareholders would recognize boot on
* Property other than stock or securities in a corporation that is party to the reorganization
* Securities received when non are surrendered
Describe the treatment of excess FMV over face value of securities received when non are surrendered
The excess FMV is considered boot
How is the amount of boot recognized for shareholders in a reorganization?
Recognized at the < gain realized or FMV of non-qualifying property
Identify the character of shareholder boot in a reorganization
* Shareholder deemed to have received only stock & then to have redeemed the stock for cash
* Gain treated as dividend (OI) to extent of E&P if exchange has effect of a dividend distribution
How is loss recognized for shareholders on a reorganization?
Loss is not recognized
Describe the treatment of shareholder basis in stock or qualified securities during a reorganization
Basis in stock or qualified securities received is exchanged
Describe the treatment of shareholder basis in boot during a reorganization
Basis in boot is tax cost
How does the transferor corporation (acquired or purchased) recognize gains or losses in a reorganization?
- Recognizes no gain or loss on exchange of property solely for stock of another corporate party
- Gain only recognized on boot not distributed (by the transferee)
Is liability relief considered boot for the transferor (acquired) corporation?
* Liability relief is not boot unless it was for a nonbusiness or tax-avoidance purpose
When does the transferor (acquired) corporation recognize gain?
If it distributes property other than stock or securities of another corporate party
Describe the treatment of the liability amount if the transferor (acquired) corporation recognizes gain due to it distributing property other than stock or securities of another corporate party
* Liability amount > basis is treated as FMV of property
How are losses treated if the transferor (acquired) corporation recognizes gain due to it distributing property other than stock or securities of another corporate party?
* No loss is recognized unless distribution is to a creditor
Identify the 2 situations when the transferor (acquired) corporation recognizes no gain or loss on distribution (even if to a creditor)
* stock or securities it received from a party to the reorganization
* boot received, except for post-acquisition gain realized
When does the transferee (acquiring or purchasing) corporation recognize gain on a reorganization?
Recognizes gain only on appreciated property exchanged but not its own stock or securities
How does the transferee (acquiring or purchasing) corporation account for basis in property acquired from the transferor (acquired or purchased) corporation?
Basis is transferred + gain recognized by the transferor corporation
Identify the 7 types of reorganizations that would qualify for nonrecognition treatment
1 - Type A - statutory merger or consolidation
2 - Type B - stock for stock
3 - Type C - stock for assets
4 - Type D - division
5 - Type E - recapitalization
6 - Type F - reincorporation
7 - Type G - bankruptcy reorganization
What is a merger?
Two corporations merge into one and the other no longer exists
Define the stock treatment of the non-surviving corporation in a statutory merger
Stock is cancelled and shareholders receive stock in surviving corporation
What is a consolidation?
existing corporations are combined into a newly formed corporation
Identify the type of reorganization that would possess the following attributes:
* Shareholders acquire stock of a corporation solely for part or all the voting stock of the acquiring corporation or its parent
* No boot allowed
* Acquire corporation must control acquired corporation
• 80% voting and all other
Type B - stock for stock reorganization
Define a Type C - stock for assets reorganization
One corporation acquires substantially all the assets of another in exchange for its voting stock (or its parents)
True or False \>\>\> The transferor (sale of assets) corporation must liquidate in a stock for assets reorganization
TRUE
What % of assets acquired may be exchanged for “other than voting” stock of the acquiring corporation ina stock for assets reorganization?
20%
What does “substantially all assets” mean in a stock for assets reorganization?
“substantially all assets” means >= 90% of the FMV of net assets and >= 70% of gross assets
Identify the type of reorganization that would possess the following attributes:
* Corporation transfers all or a part of its assets to another in exchange for the other’s stock
* Transferor or its shareholders must control the transferee after exchange
* Stock or securities of controlled corporation must be distributed to shareholders of the corporation that transferred assets to the controlled corporation
* Distribution of the stock need not be pro rata among the shareholders of the corporation that transferred assets to the controlled corporation
Type D - division reorganization
Define a Type E - recapitalization reorganization
Capital structure of organization is modified by exchange of stock & securities between corporation and its shareholders
Stock and securities exchanged upon a change in name, form or place of incorporation would be considered what type of reorganization?
Type F - reincorporation
Define a Type G - bankruptcy reorganization
Stock, securities & property exchanged pursuant to a court-supervised bankruptcy proceeding
Identify the 5 nonrecognition requirements that must be met to gain nonrecognition treatment
1 - plan must be filed with return of participating corporation
2 - distributions must be in exchange of stock or securities of corporation party to reorganization
3 - business purpose other than tax avoidance
4 - 40% continuity of equity interest by value retained by owners
5 - continuity of business enterprise
